Osvaldo Rance
Head of Mexico
Cubico Sustainable Investments
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View from the Top

Long-Term Vision With Sophisticated Financial Structuring

Wed, 02/21/2018 - 21:54

Q: How did Cubico develop a profitable business model while focused exclusively on renewable energy projects?

A: It was a major part of the added value proposal for our shareholders, which was attractive enough for them to invest in a specialized, renewable energy focus. This expertise allows us in-depth insight of all the intricacies and dynamics of the sector’s different markets. Our core is onshore wind, as well as solar PV, and most recently concentrated solar power (CSP). Determining the geographical locations in which we operate also entails an exhaustive and selective process. Our parent company is based in London, which is a financial hub that enables us to access relationships to sizable financing funds, complementing our capital. On this side of the world, we have offices in Sao Paolo, where we have more than 600MW in operation and from which we oversee the rest of Latin America. Our Mexico City office manages 600MW under construction and a pipeline of another 600MW. In 2017, we opened our office in Stamford, Connecticut to tap the US market. 

Q: What key factors allow financial closing for renewable energy projects?

A: One of our primary strengths is our expertise in financial structuring pertaining to renewable energy projects. Our team has a significant trajectory in investment banking and can anticipate project maturation processes to comply with the requirements from lenders exposing their funds to risk factors for 20-year periods. As pension funds, our investors have a permanent need for long-term cash flow predictability by nature. Mitigating all risk factors related to all of a project’s phases — development, construction and O&M — is a permanent priority for Cubico. We have a clear vision of all these risks and the respective structural mitigating factors that best answer them. During the second long-term electricity auction, Cubico won PPAs for two projects: a 250MW wind farm, El Mezquite, located in Nuevo Leon, and Solem, a 350MW Solar PV project in Aguascalientes. Both are already under construction and were among the first to reach financial closing out of more than 50 projects awarded between the first two auctions. 

Q: What business prospects has Cubico identified in Mexico’s energy market?

A: We are extremely pleased with the reform’s creation of private access to the energy sector and we believe the auctions have played a key role in attracting sizable investments and creating the required critical mass for the electricity sector. While we participated in the first two auctions, if future auctions are similar to the third long-term edition, Cubico will likely take a separate course. The third auction’s prices and respective returns were not attractive for us. Off-takers are increasingly aware of and interested in renewable energy, not only in terms of clean-energy consumption compliance starting in 2018 but also in terms of its high competitiveness compared to fossil fuels and thermal energy. Renewables bypass commodity price volatility in the international market. We can offer fixed, inflation-indexed prices for long-term periods, providing a powerful financial planning tool. We believe all conditions required to reactivate the PPA market are there and want to make the most of it. All commercialization options are under consideration, whether bilateral PPAs for self supply, PPAs under generator arrangements or future auctions. Our flexibility even allows for co-investment schemes with interested off-takers.

Q: What are your expectations for 2018?

A: By the end of 2018, our 350MW Solem Solar PV project must be operational and our El Mezquite wind farm should be one quarter away from being fully functional. We also hope to have closed the PPAs for our additional 600MW of wind power in the pipeline. Cubico’s global installed capacity portfolio totals 2.3GW and our ambition is to surpass 5GW in the next three to four years, to which Mexico will contribute 1.2GW. Mexico will have an important part to play in Cubico’s future growth and geographical diversification. Cubico wants to be the go-to, long-term, strategic partner in renewable projects for all players involved: developers, off-takers and even competitors.

Cubico Sustainable Investments  is an investment firm specialized in renewable energy projects. Ontario Teachers’ Pension Plan and PSP Investments are 50-50 shareholders of the company.